What Happens if your Builder goes Bust?

Choose carefully

Building a new home is an exciting process. It can, however, be quite daunting with risks of unexpected delays, cost increases and, in the worst scenario, your project going completely off the rails. In this article, we discuss how choosing your builder carefully can help to give you some peace of mind as you embark on your build.

A careful choice of builder, checking references and talking with previous customers can help give you peace of mind when starting a build. Asking us to review the contract with your builder before signing will also help.

Guarantees offer the best protection if your builder gets into financial difficulty, goes into liquidation and/or is unable to complete your project. Guarantees vary and how they apply to your build is determined by the type of guarantee that is included in your contract.

Building franchise guarantees

Nationwide builders who operate under a franchise agreement usually have a guarantee from the franchisor who will ensure that your build is completed if the local franchisee fails financially. Franchise builders value maintaining their reputation on a national level and often have significant funds to pull from other areas of their national business to ensure a customer gets their build completed. These types of guarantees provide a high level of confidence in the builders that include them in their contract and allow customers to engage with their builder with confidence.

Association guarantees

Master Build Guarantees have the Registered Master Builders Association guarantee that provides comprehensive cover for their members’ work, along with cover for 10 years if your builder goes into liquidation. An important aspect is that the guarantee is only valid if you have received written confirmation from Master Build Services.

Master Builders advertise that they are Registered Master Builders but if you are not sure, simply ask them or contact the association. You will often find that franchise builders are also Registered Master Builders, so if your franchise builder cannot complete your home, you can elect whose guarantee you want to rely on.

Similarly, the New Zealand Certified Builders Association (NZCB) offers a 10-year residential build guarantee (a Halo Guarantee) if your builder is a NZCB member.

You should note that NZCB guarantees only apply after the completion of your build; they will not be helpful if your builder goes into liquidation or stops working as a builder before your build is complete. However, if your builder stops working as a builder after your project is completed, the Halo Guarantee will cover claims you would have ordinarily made with your builder under any defects liability period or up to 10 years after the completion of your build.

While these types of guarantees are the best form of protection for customers they often come with a restriction or limit on the claimable amount. These subtleties highlight the importance of getting advice on both the guarantee and the build contract before your build begins.

Other situations

When your builder’s business fails and they are not a Registered Master Builder, or you are unable to rely on a guarantee from their national franchisor, there is no certainty your build will be completed. In this instance, before you engage a builder who cannot offer you guarantees, you should review the contract even more carefully.

If the builder goes into liquidation, you can engage a new builder to finish your home. There may be difficulties, however, if the progress payments are weighted in favour of the builder and the money you have paid  does not accurately reflect the progress of your build. You could end up paying more than you budgeted to have the job complete with little ability to recover your losses from the builder in liquidation. If you end up in this position, consult with us immediately to navigate the cancellation of your contract and how best you can move forward.

Get advice before you start

In an industry feeling the lingering economic effects of Covid and operating in what now is a cost-of-living crisis, make sure you get the best advice and have the best protection in place before you before you sign a contract and begin your build. 

Be sure to speak with us if you are thinking of building or have any concerns with your current building contract.

DISCLAIMER: All the information published is true and accurate to the best of the authors knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in this newsletter may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: adrienne@adroite.co.nz. Ph: 029 286 3650 or 04 496 5513